3/09/2011 @ 6:00PM

How to Become a Billionaire Zero by Zero

Early business memory: I was a young pup in the ad game, visiting a Silicon Valley client. A thrilling day, as this company looked like it would go to the moon. Its founder had invented a fingerprint scanner to identify people, fast and accurately. Press your finger here, open the secure door and bingo! Security improves even as the cost for security guards goes way down. A winner.

The little company was growing and had patent protection. Wall Street bankers were sniffing around; talk of an IPO was in the air. That was the background when I visited with the chief marketing officer to talk about ads and brochures. (Remember brochures? No Web then.)

But the marketing guy was in no mood to do business. Anticipating the IPO, he was too giddy for that. Drumming his fingers on his desk and gazing at the ceiling, he dreamily said, “Hot damn, the day after the IPO the parking lot here is going to look like Stuttgart!” He meant that employees had already picked out their shiny new BMWs.

I had a hunch this company would disappoint. And it did. After the IPO the stock failed to launch. It bobbled, slid and more or less froze below $10 for a decade and a half, imprisoned in microcap hell. Eventually the company merged with another company. Last I read it was embroiled in lawsuits over the efficacy of its technology.

As for wealth, only the founder became a multimillionaire–though well short of billionaire status. One or two of his colleagues may have touched the millionaire mark at the stock’s peak. But in the Valley, after taxes, that’s a house down payment and little else. The founder bought a Mercedes and a country club membership and added to his collection of single malt whiskey. He can buy a ticket to sit in the plush seats of commercial jets anytime he wants, but he missed the chance to have his own jet. The company parking lot remains stocked with Toyotas.

This is not a sad story, by any means. It’s heroic in its own modest way, with the typical mix of success and frustration. Fact is, it’s darn hard to land on the FORBES billionaires list. Starting your own company is still the best path to becoming a billionaire, but the hill steepens for each additional zero of net worth.

Let’s add the first zero. With inflation, an eight-figure net worth–$10 million to $99 million–is what most of us think of when the word “millionaire” comes to mind. An eight-figure net worth is what the CEO above accumulated. He reached for the moon, failed, but still touched the sky. Eight figures is also the province of more humble businesspeople who own tidy franchises that spit out nice cash flows. Every city of size in the U.S. has dozens or hundreds of these prosperous burghers.

Are there easier ways to accumulate eight figures? Maybe not easier in work hours, but there are ways with less risk. Partners of big-city law firms will blast into eight-figure wealth in their 40s. Partners at top investment banks can manage the trick in their 30s. The rub is that you’d better have 99.9th percentile SATs and a stellar college record to qualify for these jobs. In the prerecession days commercial real estate brokerage was the scrappy person’s route to eight-figure wealth. CEOs of publicly traded companies will get to eight figures easily.

Let’s ratchet it up again, to nine figures–$100 million to $999 million, a zero short of billionaire status. How does one get there? The fastest way is to start a company beloved by the capital markets and flip your creation before the markets change their mind. The most common liquidity exit used to be IPOs, but now the best way is to sell your creation to another company with a high market cap and loaded with cash. Cisco, Oracle and Google have given many an entrepreneur nine-figure wealth.

Now the summit: How does one become a billionaire? Outside of Wall Street the best way is to start a company that rides the Moore’s Law curve and scales globally. In my previous column Intel’s CEO, Paul Otellini, said that Moore’s Law was assured for another five years. Computing will be eight times more powerful at today’s prices. What does this mean for business? One dollar of today’s computing power will cost 3 cents five years from now. Whoa! What new applications will spring from that? What things will be displaced when computing is that cheap?

Figure this out and you won’t have to worry about liquidity exits. The money will come to you. Figure this out and you’ll be on a future FORBES billionaires list.

For detailed advice on technology and global scale, read Andy Kessler’s new book, Eat People: And Other Unapologetic Rules for Game-Changing Entrepreneurs (Portfolio).